Recently several banks have quietly reduced the value of points within their rewards programmes. So whats going on?
For example, CBA will decrease the rate at which Diamond and Black card holders can earn a Qantas Point from 2 to 2.5 reward points, a 20% loss of value.
ANZ has reduced its rewards on many of its cards, with its Visa version dropping from 2 Points per $1 spent to 1.25 ANZ Reward Points per dollar spend; their Platinum American Express earn rate is falling from 3 to 2 points per dollar spent and their Platinum Visa earning 1 ANZ Rewards Point per $1 rather than the previous 1.5 points per dollar.
They are not alone. Virgin Money says from April 1 2016, the rate at which cardholders can earn Velocity Frequent Flyer Points will be reduced by up to 33%, from one Point per dollar, to 0.66 Points while the Points cap will remain at $1,500 per month. Velocity High Flyer cardholders will also see a drop from 1.25 Points per dollar, to one Point per dollar with a new points cap of $10,000 per month. They also removed rewards from BPay payments (whilst offsetting purchases from Virgin).
Citibank, effective 18th March, lowered Rewards points per A$1 to 1.5 and from uncapped to the first $20,000 spent in each monthly statement period. Credit card BPAY payments no longer earn points and Citibank’s overseas transaction fees rose to 3.4%.
There are two factors in play. First, the interchange fees (that’s the interbank fee for payment processing) has been examined by the RBA, but this is at the discussion stage, and in December 2015, the RBA said
Given the complexity of issues involving interchange fees and companion cards, it is unlikely that the Board will take any formal decision on changes to the interchange standards before its May 2016 meeting … In the case of surcharging, depending on consultation responses, it is possible that the Board may be in a position to make an earlier decision on changes to its standards.
The RBA consultation paper noted that lower interchange fees may follow.
No credit card interchange fee would be able to exceed 0.80 per cent and no debit interchange fee would be able to exceed 15 cents if levied as a fixed amount or 0.20 per cent if levied as a percentage amount.
They also said:
The reduction in interchange fees, especially the cap on the highest credit card rates, is likely to result in some reduction in the generosity of rewards programs on premium cards. It is likely, however, that there would be only limited changes to other elements of the credit card package (e.g. interest rates, interest-free periods). Similarly, the reduction in the high percentage debit/prepaid interchange categories may be likely to result in some reduction in rewards generosity for some of the new debit/prepaid rewards cards. There are unlikely to be other material changes to arrangements for transaction accounts.
We discussed credit card economics in this earlier post and the recent Senate Inquiry into Credit Cards made 11 reform recommendations.
The writing is on the wall, and interchange fees, especially for premium cards, are likely to drop.
Second, with banks experiencing margin pressure, fiddling with card reward programmes is a cheap way of growing margins. The intrinsic complexity of the reward programmes (and the fact that not all card holders cash out their rewards anyway) means that changes are so opaque as to be unnoticed by many.
Remember also that credit card interest rates have not followed the target cash rate down.
The truth is, unless you are a devoted points collector, and spend the time to calculate the value (both earn and burn) of the reward points you may gain, you will simply not react to point devaluations. And the RBA interchange intervention provides perfect cover for reducing the value of points.
Expect more cuts in coming months, hikes in some fees and charges and changes to the terms and conditions for rewards points.
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